Dubai
Some asset managers like Union Bancaire Privée (UBP) are not ready to invest in Pakistani stocks despite the upgrade to emerging market status.
Index provider MSCI said it will upgrade the Pakistan index again to emerging market index from June 1 after a gap of nine years, a move that is expected to bring inflows of $100-200 million in 2017.
However, UBP said in an email interview that the Pakistani index does not meet its criteria for any investments.
“There is no stock currently fulfilling our value and quality criteria,” said Mathieu Nègre in an interview.
“Pakistan will stay on our radar screen and we will act tactically if something comes up, although it’s unlikely in the short term as market is very strong as an upgrade is approaching and passive players are forced to buy.”
The benchmark Karachi Stock Exchange KSE 100 index gained more than 40 per cent in the past one year, making the gauge as the best performer in Asia. This compared with 25 per cent gains in the MSCI emerging market index. The index has gained 6.59 per cent so far in the year.
But despite outperformance, Pakistani stocks are still cheap compared to other peers:
The Pakistani market is still cheap on 10x Price to earning multiple, compared with other peers like India, which is trading at 22 times PE multiple and Indonesia at 23 times.
In terms of dividend yield, Pakistani stocks are yielding 4 per cent, while Indian stocks at 1.3 per cent, and Indonesian stocks provide dividend yield of 2.2 per cent.
Healthy part:
But, Mark Shirreff Matthews, Head Research Asia, Bank Julius Baer feels that Pakistani stocks should be a healthy part of the portfolio.
“The pros are the fact that Pakistan is growing faster than most emerging market countries, and there is much less debt,” said Matthews, adding “the cons are MSCI Inclusion flows are now at least partially priced in, and management is usually less sophisticated than in India.”
Don’t ignore:
Karachi Stock Exchange (KSE) Managing Director Nadeem Naqvi is bullish on local stocks.
“If you take 2-3 year perspective it may not be the wisest thing to do (to ignore Pakistan). If you look at the performance of the market, someone is going to miss out something, if they exclude Pakistan,” Naqvi was quoted as saying by a news agency.
Pakistan is currently trading at 11 times forward PE multiple, and is at a 35 per cent discount to EM peers.
When asked about Mark Mobius view on he still viewing Pakistani stocks as frontier markets, Naqvi said “we are reaching a tipping point both in terms of governance as well as market infrastructure and regulatory framework ... yes it’s a narrow market, but it is steadily moving up.”
The KSE is getting money from the real estate market after the government imposed taxes, and this may continue.
Naqvi expects the underlying profitability of companies remain very robust.
